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Overweight on consumer discretionaries; underweight on healthcare: Vinay Paharia, Religare Invesco

So, right now, we are underweight on consumer staples and health care sector. According to us, the risk-reward pay off in these stocks is not what we would have desired.

ET Now|
Updated: Sep 08, 2015, 04.23 PM IST
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 So, right now, we are underweight on consumer staples and health care sector. According to us, the risk-reward pay off in these stocks is not what we would have desired.
 So, right now, we are underweight on consumer staples and health care sector. According to us, the risk-reward pay off in these stocks is not what we would have desired.
In an interview with ET Now, Vinay Paharia, Fund Manager, Religare Invesco MF, shares his stock ideas. Excerpts:

ET Now: Your growth midcap funds have been outperformers to the indices over a one-year time period. What is the sense there? How are you looking at positioning yourself as far as the specific cluster of funds goes?

Vinay Paharia: In fact, the sector allocation is actually a result of stock selection. So, if we are able to identify and find good stocks in any sector, we would want to own it. If, we are able to find many stocks, in say for example, consumer discretionary sector, that sector becomes the biggest overweight and vice versa. So, if we are not able to identify companies which satisfy our investment processes, then effectively those sectors become underweight.

For example, right now as we speak, consumer discretionary is the largest overweight sector in the fund simply because we have been able to identify companies which are good businesses, run by good managements, and most importantly are available at reasonable valuations. Same is the case with companies in the banking and financial sector, and we are not taking specific short term calls related to interest rates or related to credit cycle, we are focused on the long-term opportunity, what is the underlying business growth, sustainability of that growth, whether it is being run by a good set of management, and most importantly if it is available at a reasonable valuation. So, that has been the key reason for our outperformance.

ET Now: But, tell me are there any sectors that you are underweight on right now?

Vinay Paharia: Absolutely! So, right now, we are underweight on consumer staples and health care sector. And, one of the biggest reasons why we are underweight on these sectors is because the stocks in these sectors are pretty expensive. So, according to us, the risk-reward pay off in these stocks is not what we would have desired.

ET Now: What are you advising investors to do at this point in time? Do you think that this is a good entry level or do you believe that the dust still needs to settle perhaps a few hundred points lower before you would advise investors to buy in?

Vinay Paharia: I agree that recently, there has been increased volatility in the market. Equity as an asset class is generally volatile. However, recently that volatility has increased in response to some of the events which have happened globally. Having said that, according to us, what drives an investor’s returns are just two things: one is the underlying company’s earnings growth rates and the underlying earnings and second is valuations at which you buy them.

According to us, because of the recent correction, the valuation premium which Indian markets were enjoying has come down pretty sharply. So, right now, we would be trading at just about 8 or 9 per cent premium over long-period averages as far as valuations are concerned. So, if an investor invests into markets at current levels, his return outcomes will not be materially different than the underlying earnings and hence, we would advise investors to stick to their asset allocation plans which have been provided to them by their financial advisors and continue with their SIPs in this market.
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